$21.274m Dodeka X cat bond lite completed by Twelve Capital

22nd July 2016 - Author: Artemis

Zurich headquartered specialist insurance and reinsurance linked investment and ILS fund manager Twelve Capital has arranged another private catastrophe bond deal, with the completion and listing of a $21.274m Dodeka X transaction. The private catastrophe bond, or cat bond lite, has been used regularly by ILS manager Twelve Capital as it seeks to transform reinsurance contracts into a liquid, tradable security to meet certain of its investment mandates.

This is the twelfth deal in the Dodeka series of private cat bonds from Twelve Capital, and the third in just the last month, demonstrating the ILS fund managers commitment to sourcing risk in cat bond lite form for its investors.

The Dodeka transaction are typically an industry loss warranty (ILW) reinsurance or retrocession contract, which Twelve Capital has transformed, securitised and listed on the Bermuda Stock Exchange (BSX) in order to place the private reinsurance transaction into the liquid ILS risk market.

Acquiring risk in securitised, transferable form, for managers of insurance-linked securities (ILS) funds, can be vital. When the primary issuance market for catastrophe bonds has been slower, as seen in recent months, it provides a way to access risk that fits certain of their ILS fund mandates or private investor mandates that can only invest in liquid securities.

This $21.274m Dodeka X private cat bond transaction has been issued using the Artex SAC Limited ILS Note Program II segregated accounts company vehicle. Dodeka X represents a single segregated account of the Artex SAC ILS II note program, and has been transformed into private cat bond form resulting in the issuance of $21.274m of tradable ILS notes.

The $21.274m transaction of insurance-linked notes are due on the 27th July 2017, so represent an annual reinsurance or retrocession contract, likely covering U.S. perils over the next year.

Hence we assume that Dodeka X features a transformed industry-loss warranty (ILW) contract, using a PCS industry loss trigger, covering U.S. natural catastrophe perils, as is typical of Twelve’s Dodeka private cat bonds to date. We cannot 100% confirm this though.

The ILW structure provides a simpler reinsurance contract, in terms of features, which makes them simpler to transform into an issuance of private cat bond notes and a more cost-effective way to transform risk into a liquid securitised form, for ILS fund managers such as Twelve Capital.

Dodeka X’s $21.274m of notes have been listed on the Bermuda Stock Exchange, to enhance the liquidity of the issuance offering Twelve Capital improved options and transparency to trade the notes on the secondary cat bond market should they choose to.

The Dodeka series provide ILS manager Twelve Capital with a tool to access risk through collateralised reinsurance means, but resulting in a liquid security for its cat bond fund strategies.

Previous Dodeka private cat bond transactions include Dodeka I in January 2014, Dodeka II in February 2014, Dodeka IV in June 2014, Dodeka III in August 2014, Dodeka I – 2015 in February 2015, Dodeka V in May 2015, Dodeka VI in June 2015, Dodeka VII in July 2015, Dodeka VIII in June 2016 and most recently the Dodeka V-2016 private cat bond we announced yesterday.